Intelligent Lighting Solutions for Optimal Plant Growth and Energy Efficiency

72 Pages·2016·4.04 MB·English

by  Swartz, Michael

Intelligent Lighting Solutions for Optimal Plant Growth and Energy Efficiency
BUSINESS DESCRIPTION
Heliospectra AB

Address: Heliospectra (“the Company”) specializes in intelligent lighting technology for plant research
25 Taylor St and greenhouse cultivation. The Company’s lighting system provides an effective and durable
San Francisco, CA 94102
technology for cultivating greenhouse and indoor plants by combining several different groups
Phone:
of versatile light emitting diodes (LEDs) with optics, remote sensing techniques, and a robust
1-888-942-GROW
B heat dissipation solution. This proprietary setup gives growers the ability to control the
Status:
Public: (OTCQB:HLSPY); (Nasdaq- intensity and wavelengths of the light emitted, creating a spectrum specifically adjusted to
A OMX First North: HELIO) different plant species and growth stages to better facilitate photosynthesis. The complete,

Website: highly-engineered lamp produces crops that look better, taste better, and have a longer shelf-
www.heliospectra.com
life than those grown under HID lamps. The technology not only reduces energy consumption
Key Contacts
by up to 50%, but also helps stimulate growth characteristics and improve plant quality. Other
A Chief Executive Officer:
benefits include reduced light pollution, lower mercury use due to the avoidance of traditional
Staffan Hillberg
HID/HPS bulbs, reduced water consumption, and less HVAC investment and monthly
Chief Financial Officer
R
Håkan Bengtsson expense requirements.

Chief Operating Officer  Disruptive Technology. Heliospectra has developed a disruptive LED-based intelligent
T Chris Steele lighting solution for greenhouses, indoor growing, and growth chambers. Heliospectra’s

US General Manager lighting system is centered on its ability to understand plants’ characteristics and needs and
Chris Walker
C modify the generated light spectrum to fast-track growth in an optimized manner.
Market / Industry Snapshot Heliospectra’s technology is unique in its foundation in the Internet of Things (IoT). By

Industry: combining sensors – which monitor the condition of plants and how they use the light – with
E
Controlled-Environment Agriculture state-of-the-art software that controls the lighting via Ethernet and/or WiFi, the Company

Sectors: offers growers the ability to collect data and potentially accelerate their own learning curve.
P LED Plant Growth lamps /  Leading Technology and Valuable Intellectual Property. Heliospectra has worked
Greenhouse and Indoor horticulture
diligently with its intellectual property development team to achieve a strong, strategic patent
S Market Size (Cannabis: portfolio in the market for LED lights. Over the last two years, six patent applications have
2015: $3.5 Billion
2018E: $10.3 Billion been submitted as supplements to the basic patent applications previously submitted in 2007.
O The basic patent applications have already been approved in Russia, China, Hong Kong, and,
Key Financial Data
most recently, the United States. Heliospectra’s patent portfolio includes applications for
Financial Snapshot
spectrum optimization, stress detection, growth detection and control, and system integration
I
2014 Revenue:USD 496.9K and support. In October 2014, Heliospectra was issued a patent by the US Patent and
2014 Q1-Q3 Revenue:USD 384.1K
L Trademark Office (USPTO) for methods in optimizing LED lighting for plants.

2014 Revenue:SEK 4.3M
2014 Q1-Q3 Revenue:SEK 3.3M  Large Market Opportunity. The global food system will experience a food security crisis
E over the next 40 years. The global human population is expected to rise from 7 billion today to
2015 Q1-Q3 Revenue:USD 907.9K
8 billion by 2030, likely going on to exceed 9 billion by 2050. To sustain this population
2015 Q1-Q3 Revenue:SEK 7.8M
H growth, global food production will need to increase by some 70%. Heliospectra’ s advanced
Balance Sheet (USD)
lighting system will allow quick market penetration due to the Company’s patented
Current Assets: $3.74M
Current Liabilities: $1.01M biofeedback system and superior lamp engineering, helping growers in different agricultural
Total Liabilities: $3.13M
sectors grow products, efficiently and cost- effectively, to help solve the global food security
Shareholders’ Equity: $2.16M
and scarcity challenges.
TStroacdki nPgri/cSet o(c1k/5 P/1r6i)c:e$ 1.35  Recent Positive Developments. Over the past 6 months, Heliospectra has recevied
52-Wk.H/L: $7.00 - $1.00 several breakthrough orders in the U.S. and Europe and has raised over $5 million through
Avg. Daily Volume: 2,693 the completion of a private placement and the utilization of subscription warrants. The
Market Cap: $25.14M
Float: 6.4M Company sold one of the largest LED cannabis cultivation installations in the world to a Las
Shares Outstanding: 18.62M Vegas Commercial Cultivation Facility, with Phase 1 of the contract valued at $672K.

Additionaly, the Company received its first order of the new LightBar V101 from a large
European greenhouse grower valued at just over $229K , representing Heliospectra’s largest

order in Europe.

This report is published solely for information purposes and is not to be construed as investment advice or as an offer to sell or the solicitation
of an offer to buy any security in any state. See Important Disclosures on back page of this report.

Broker Dealer Services Provided Through Pickwick Capital Partners, LLC Member FINRA SIPC
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TABLE OF CONTENTS

EXECUTIVE SUMMARY ..................................................................................... 4
THE COMPANY .......................................................................................................................... 4
MARKET AND OPPORTUNITY ................................................................................................. 6
COMPANY HIGHLIGHTS ............................................................................................................ 9
GROWTH STRATEGY .............................................................................................................. 12
KEY MANAGEMENT & DIRECTORS................................................................... 16
RECENT NEWS AND PRESS RELEASES ............................................................... 18
THE COMPANY ............................................................................................... 20
PRODUCTS AND TECHNOLOGY OVERVIEW ...................................................... 22
BUSINESS MODEL .......................................................................................... 34
SALES AND MARKETING ................................................................................. 36
OPERATIONS ................................................................................................. 38
RECENT FINANCINGS ...................................................................................... 39
RESEARCH AND DEVELOPMENT ...................................................................... 40
MARKETS ...................................................................................................... 46
RESEARCH INDUSTRY ............................................................................................................ 46
GREENHOUSE INDUSTRY ...................................................................................................... 49
LEGAL CANNABIS INDUSTRY ................................................................................................. 54
COMPETITION ............................................................................................... 62
SUMMARY OF WHITE PAPER .......................................................................... 64
SELECTED FINANCIAL DATA ............................................................................ 68
SELECTED FINANCIAL DATA ............................................................................ 69
WEBSITE ........................................................................................................ 70

www.heliospectra.com Page 3 of 72 January 2016
EXECUTIVE SUMMARY

THE COMPANY

Today, almost all commercial greenhouses and indoor grow operations use high-intensity
discharge (HID) or high-pressure sodium (HPS) lamps for their plant growth lighting. These archaic
lamps are, more or less, the same types as those used for highways and other industrial functions.
They are highly energy inefficient and are being retrofitted worldwide – with horticulture being the
least understood application. The spectra they emit is static and does not suit the action spectrum
of the photosynthesis. In fact, this mismatch, with a lot of power in the far red, implies that
approximately one third of the emitted light energy can never be used by the plants; often,
percentage of wasted light is even higher. HPS lamps are not adjustable, are slow to start, produce
heat that must be countered with additional A/C infrastructure and monthly costs, their bulbs must
be replaced often – leading to potential crop contamination through human interaction – and are
the last piece of the indoor and greenhouse growing hardware infrastructure to evolve significantly.

Heliospectra, (NASDAQ OMX First North: HELIO) (OTCQB: HLSPY), has developed a powerful
plant lighting system to address the growing demand for a non-HID lamp technology. By actively
delivering the right light intensity and spectrum as well as providing a modular solution for
retrofitting or new construction, Heliospectra has the first viable substitute for HIDs in commercial
growing applications. The Company’s lighting system provides an effective and durable
technology for cultivating greenhouse and indoor plants by combining several different groups of
versatile light emitting diodes (LEDs) with optics, remote sensing techniques, and a robust heat
dissipation solution. This proprietary setup gives growers the ability to control the intensity and
wavelengths of the light emitted, creating a spectrum specifically adjusted to different plant species
and growth stages to better facilitate photosynthesis. The complete, highly-engineered lamp
produces crops that look better, taste better, and have a longer shelf-life than those grown under
HID lamps. The technology not only reduces energy consumption by up to 50%, but also helps
stimulate growth characteristics and improve plant quality. There are other added benefits to the
environment such as reduced light pollution, lower mercury use due to the avoidance of traditional
HID/HPS bulbs, and less HVAC investment and monthly expense requirements.
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Heliospectra’s business concept involves developing and selling efficient lighting systems that
enable growers to replace archaic lighting technology with more efficient and effective lamps to
better control quality and growth. Heliospectra was founded in 2006 and is today a leading
international company in the optimization of plant performance in greenhouse and indoor grow
environments. The Company is beginning a very exciting phase in its development with the launch
of the LX60 lamp, a high volume product for professional growers. Heliospectra’s long-term goal
for this lighting system will result in enabling growers with the ability to “communicate” with and
control their crops. This ability to enhance or suppress desired characteristics has profound
impacts on an operation’s ability to flex with market demands.

The Company has launched the first cornerstone to the system, the LX60 lamp, which received
enthusiastic customer response. The LX60 Series uses primary and secondary optic lens plates for
achieving maximum uniform light intensity and spectral distribution across a growing footprint. By
maximizing the amount of light across a growing surface, the lamp minimizes light-loss, produces
uniform canopy growth, and can increase yields. As a foundation for further commercialization,
Heliospectra plans to integrate sensors into their lighting platform and offer cloud services starting
in 2015 or 2016. Its highly refined products and services will allow the Company to exploit its
position in a growing market.

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MARKET AND OPPORTUNITY

Global Food Production / Shifting Population

Global agriculture and food production are facing multiple pressures. Experts believe the main
challenge of agriculture involves feeding a growing global population that is expected to increase
from seven billion people today to approximately nine billion in 2050. As a result, The United
Nations Food and Agriculture Organization estimates that food production must increase by 70%
over the next forty years to satisfy increasing demand. The primary factor driving the population
growth is urbanization, where the number of cities with over 1,000,000 people experienced the
fastest growth in the developing world. Billions of people have already moved from rural areas into
rapidly growing urban cities and billions more are expected to make this transition over the next 40
years.

Specifically, in North America, the last 50 years have brought a major cultural shift that has
removed consumers further and further away from their food sources. U.S. Census data showed
around 80% of Americans living in urban areas, while a Mexican Household Survey conducted by
Harvard School of Public Health found that, in the last forty years, the number of Mexicans living in
urban areas rose from 51% to 74%. According the Canadian Geographic, two-thirds of the entire
population of Canada live in one of eight urban environments.

Scarce Natural Resources

As the population grows, the face of agriculture shifts. There is limited opportunity to expand the
land used in agricultural production as climate change and diminishing natural resources create an
increasingly hostile growing environment. From mechanized feedlots to automatic irrigation
systems to agricultural machinery, global agriculture has become increasingly industrialized,
placing ever-greater demands on fossil fuel, water, nutrients, and topsoil resources.

Water around the world is becoming scarcer and more contaminated. Groundwater is becoming
more polluted by agricultural runoff and other toxins. 70% of all available fresh water on Earth is
consumed by irrigation-style agriculture watering, and rates of water extraction for irrigation are
exceeding rates of replenishment in many places. According to the US Geological Society, the
amount of ground water drawn for use in irrigation has tripled since the 1950s. Additionally, this
water — after being contaminated with pesticides, herbicides, fungicides, and fertilizers — seeps
into rivers, streams, and aquifers and causes salinization of once arable land; this toxic runoff is
responsible for more ecosystem disruption than any other kind of water pollution. Climate models
also suggest that rainfall may become less predictable and dependable, forcing the construction of
more sophisticated water catchment systems.

Whereas in the past, the agriculture industry has been able to expand croplands to meet increased
demand for food, today, viable land for expansion is rapidly being exhausted. The amount of arable
land available for each person has dropped from 1 acre in 1970 to half an acre in 2000 and will be
one third of an acre by 2050. 25% of the world's land has now been highly degraded through soil
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erosion, water degradation, and biodiversity loss. Another 8% is moderately degraded, while 36%
is stable or slightly degraded and an additional 10% is improving. The rest of the Earth's surface is
either bare or covered by inland water bodies. Furthermore, climate change is creating significant
pricing and demand pressures on agriculture. The recent report on future food prices
commissioned by Oxfam, estimated that, under normal circumstance, food commodity prices are
likely to increase about 50% between now and 2030. If estimates of climate change are factored in,
food prices could be up to 100% higher.

Controlled-Environment Agriculture

According to a new report from ReportsnReports.com, the LED grow light modules (for agriculture)
markets is expected to grow from $395 million in 2013 to $3.6 billion by 2020 (a compound annual
growth rate over 37%). The study states that rapid growth is anticipated to come in part from the
home and restaurant market segments as people, particularly the affluent, become more health
conscious. A fast developing consciousness is avoiding the deleterious effects of pesticides in food.
Worldwide markets are poised to achieve significant growth as the food producers of the world
begin to adopt automated processes. Grow lights have become more sophisticated and less
expensive to run, and solar and wind energy continue to be adopted by greenhouses and plant
factories. LED grow lights provide quality for growing, offering intense, homogeneous light
distribution at precisely the right wavelengths. LED grow lights are also more powerful and
significantly more energy-efficient than the older generation high-pressure sodium and metal halide
grow lights.

Consequently, the number of commercial greenhouses and the area they occupy are sharply rising.
For example, in the Netherlands, greenhouses occupy around 0.25% of the land area of the entire
country. The Netherlands is not even the largest producer of greenhouse vegetables in Europe.
Countries in higher latitudes use supplemental lighting to compensate for the lack of sunlight in the
winter. However, even in lower latitudes these technologies and their deployment can be used to
increase the number of light-hours for growing plants.

One industry these environmental challenges are impacting is the legal cannabis industry, which
has experienced a major transformation over the past three years as increasing public approval of
cannabis use and massive shifts in the regulatory environment changed the industry’s business
landscape in a variety of ways. Based on a Gallup Poll from 2013, 58% of adults in the U.S. were
in favor of the legalization of cannabis, a 10% increase from the previous year. Moreover, eight
new states plus the District of Columbia have adopted legislation that permits the use of medical
cannabis in the past year, bringing the total number of states with legalized medical cannabis to 23.
However, the most instrumental change impacting the industry has been the development of the
first recreational cannabis markets in the history of the United States. On January 1, 2014,
Colorado and Washington became the nation’s inaugural states to implement recreational use
policies, which have provided substantial tax revenue and job creation for these states. This
legislation has also allowed states to redirect law enforcement efforts to other, more pressing
needs. The progress of these two states has paved the way for new recreational legislation in
many other jurisdictions. In the recent November midterm elections, Oregon, Alaska, and
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Washington, DC voted to legalize recreational cannabis, which has quickly proven to be another
strong driver for growth in the industry.

The shifting regulatory environment in favor of legal cannabis, combined with the increase in
demand, has led to the legal cannabis industry becoming one of the fastest growing industries in
the United States. The estimated value of this burgeoning industry was approximately $1.4 billion
for 2013, growing to over $2 billion in 2014. However, these estimates are perhaps on the low side
due to undercounting of ancillary products and services. The long-term growth outlook for the
industry is strong; one estimate has the market exceeding $10 billion by 2018. Many experts
believe this will hold true, conservatively, based on growth in the current market and additional
states moving to allow medical cannabis and/or legalizing recreational use.

The result of this spectacular growth is that industry leaders are experimenting with new
technologies, including lighting and growing methods to ensure premium quality to the consumer
while at the same time optimizing profits. This has led to significant demand, specifically in regard
to cultivation products. These technological innovations, such as automated fertilization systems,
modern greenhouse technology, and LED Technology, create competitive advantages for
cultivation businesses by allowing cultivation sites to lower costs, boost yields, and maximize
production capacity compared to traditional methods of cultivation. The situation is changing so
rapidly that the decisions cannabis cultivation businesses make today will play a huge role in
whether they are still around in a few years. Growers know that the adoption of more efficient
lighting lowers the cost of goods sold, forcing an inevitable adoption between competing growers.
Electricity demand for lamps is the largest monthly expensive to the grower. Heliospectra’s
systems facilitate a competitive advantage through lower electricity usage as well as reduced
monthly HVAC expenditure and upfront HVAC capital outlay as a result of less heat generated by
the lamps.

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COMPANY HIGHLIGHTS

Market Penetration

Heliospectra’s advanced lighting system will allow quick market penetration due to the Company’s
patented biofeedback system and superior lamp engineering, helping growers in different
agricultural sectors efficiently and cost-effectively grow products to help solve food security
problems.

Over the next 40 years, world population is expected to swell to 9 billion people. The United
Nations’ Food and Agriculture Organization predicts that, in that time, global food production will
need to increase by 70% in order to prevent massive famine. Simultaneously, producers must
learn to cope with changes in climate, intensification of floods and droughts, depletion of resources,
and dramatic political shifts. Meeting the coming demand for food will mean addressing these large
challenges that threaten the future of conventional agricultural production and food security
worldwide. These trends are driving innovation of new farming technologies that allow plants to
grow without sunlight in indoor environments close to or within cities. Global indoor farming - the
CEA industry - is now competing with conventional farms. Employing the use of technologies like
advanced lighting along with hydroponic, aquaponic, and aeroponic methods to quickly grow high
quality fruits and vegetables year-round is quickly becoming commonplace. The Company is well
positioned to take advantage of recent market trends with its current product, the LX60 Series,
which uses primary and secondary optic lens plates for achieving maximum uniform light intensity
and spectral distribution across a growing area. With the new generation LX60, which was
launched in 2014 and has been very well received by the industry, Heliospectra has been able to
improve efficiency and dramatically reduce energy consumption while simultaneously lowering the
purchase price for consumers. The LX60 is currently being used by a number of major growers.
Interest in optimizing cultivation at home or locally has increased dramatically in large towns and
cities; people are now growing on roofs, on balconies, and in basements. The Company is
positioned to capture this momentum.

LED-Based Lighting Solution

By utilizing sophisticated LED based lighting solutions, Heliospectra has created many
competitive advantages compared to traditional lighting equipment, such as:

Light Intensity: Superior engineering via two-tiered optics has resulted in one of the most
efficient, light-intense, uniform footprints available to commercial grow operations.

Energy-use: LED lights have much lower energy consumption, approximately 50-60% of
that of equivalent HID bulbs

Control: The Heliospectra LX60 is the only luminaire available with individual spectrum and
variable intensity control. This equates to unprecedented control over Light Recipes or the
ability to deliver dynamic light.

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Example 1: the ability to mimic sunrise and sunset.
Example 2: Heliospectra customers have developed light
recipes that involve a “far red push” at the end of a
flowering photoperiod, resulting in faster to market product.

Longevity: There is no filament to burn nor bulbs to replace. LED luminaires have longer
usable life spans - over 50,000 hours. Most HID bulbs only last 12,000 – 13,000 hours but
degrade much earlier; the recommended replacement time is 9-10 months, but many
growers replace every 3-4 months.

Heat Control and Reduction: LED lights change the HVAC equation, pose far less risk of
fire, and, with Heliospectra’s modular heat dissipation solution, growers can manipulate and
direct heat within their environment. Minimized heat equates to less upfront HVAC capital
expenditure and lower monthly electricity costs. In large grow operations, a 50% reduction
in utility bills has been seen post LED adoption. This cost benefit alone is a compelling
argument to move out of HID bulbs.

Color spectrums: The Company has developed light recipes, different diode plates and
optics customized for different species. This highly advanced lighting system offers extreme
value to all growers, specifically cannabis growers. Multiple light recipes, lamp batching per
strain and grow phases opens the door to a new paradigm of growing techniques. Today,
LEDs with spectrum control results in higher quality plants and customization of chemical
profiles when compared with equivalent HIDs - which cannot alter peak spectral output.

Power Management: Heliospectra’s lamps have built-in power management tools, while
HID lamps rely on external ballasts that add another 150 watts of power consumption.

Upfront Costs: The initial cost of LED lights may be higher than equivalent HID units if
subsidies and incentives are not available; however, given their benefits, they are less
expensive over the long term, with ROI numbers fluctuating between 8-16 months
depending on electricity costs, species grown, and methodologies employed.

Disruptive Technology

The Company has developed a disruptive LED-based intelligent lighting solution for greenhouses,
indoor growing, and growth chambers. Heliospectra’s lighting system is centered on its ability to
understand plants’ characteristics and needs and to appropriately modify lighting to fast-track
growth in an optimized manner. Heliospectra’s technology is unique in its foundation in the Internet
of Things (IoT) foundation. By combining sensors – which monitor the condition of plants and how
they use the light – with state-of-the-art software that controls the lighting via Ethernet and/or WiFi,
the Company offer growers the ability to collect data and potentially accelerate their own learning
curve. The Company’s protected portfolio of patents granted and pending is based on a complete
biofeedback system that the Company intends to leverage in order to replace inefficient, traditional
lighting technologies that are currently deployed in commercial grow operations.

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